- The Washington Times - Tuesday, February 3, 2004

NEW YORK — The government’s star witness against Martha Stewart testified yesterday that Mrs. Stewart’s stockbroker ordered him to pass an ImClone Systems stock tip to the lifestyle maven just before she dumped her shares in the company.

Douglas Faneuil, a former assistant at Merrill Lynch & Co., testified that broker Peter Bacanovic ordered him to alert Mrs. Stewart on Dec. 27, 2001, that the family of ImClone Systems founder Sam Waksal was trying to sell its shares.

Mr. Faneuil said he expressed concern and asked Mr. Bacanovic whether passing such a tip would be appropriate.

“Of course. You must. That’s the whole point,” he said Mr. Bacanovic replied.

Mr. Faneuil described a hectic morning during which he fielded calls from Mr. Waksal’s accountant and both of Mr. Waksal’s daughters before 10 a.m., all ordering him to sell the family’s ImClone shares immediately.

Mr. Waksal later admitted he had advance word of a decision that was to be released the next day — a negative government report on an ImClone cancer drug — that would send the stock tumbling. Mr. Waksal is now serving a prison term of more than seven years.

Mr. Faneuil said he called Mr. Bacanovic, who was on vacation in Florida, to discuss the flurry of selling by the Waksals. He said Mr. Bacanovic blurted: “Oh, my God, get Martha on the phone.”

Mr. Faneuil’s testimony contradicts Mrs. Stewart and Mr. Bacanovic, who said that they had a pre-existing agreement to sell Mrs. Stewart’s ImClone stock when its price fell below $60 per share.

Mrs. Stewart is charged with obstruction of justice, securities fraud and other counts that carry a total of 30 years of prison time. Mr. Bacanovic faces up to 25 years if convicted of perjury, conspiracy and other charges.

Mr. Faneuil testified earlier that Mrs. Stewart was one of Mr. Bacanovic’s two most-valuable clients. Mr. Bacanovic was close enough to her that he got some shares in Mrs. Stewart’s company when it went public, Mr. Faneuil said.

He also praised his former boss.

“Peter was the best boss I ever had,” Mr. Faneuil said. “It was a great working relationship. He was demanding yet appreciative.”

Mr. Faneuil’s reputation and credibility will be critical to the trial’s outcome.

Earlier yesterday, Mr. Bacanovic’s attorney, Richard Strassberg, moved to raise doubts about Mr. Faneuil by getting his former supervisor to admit she once reprimanded him for cursing on company e-mail.

Judy Monaghan, an administrator at Merrill Lynch & Co., also testified she told Mr. Faneuil to stop using company e-mail for personal messages. Miss Monaghan gave no details about the content of the e-mail.

Prosecutors put into evidence yesterday an e-mail invitation to a 2001 Christmas party at Mr. Waksal’s home that went to Mr. Bacanovic.

They also tried to introduce W-2 tax forms that would have showed jurors how much money Mr. Bacanovic made at Merrill Lynch in 1999, 2000 and 2001, but U.S. District Judge Miriam Goldman Cedarbaum did not immediately allow it into evidence.

Also yesterday, Judge Cedarbaum blocked prosecutors from telling the jury that Mr. Bacanovic removed certain documents from his Merrill Lynch office while they were under government subpoena.

“We don’t know exactly what those documents were that were removed,” prosecutor Michael Schachter told the judge.

Judge Cedarbaum said the point was irrelevant and ordered the jury to disregard the testimony about documents removal.

Mr. Strassberg said the only documents removed were personnel files. He said that Merrill Lynch officials had authorized their removal and he even watched Mr. Bacanovic and Mr. Strassberg take them.

“It’s a complete red herring,” Mr. Strassberg said.

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